GF Securities Hong Kong: The proportion of pro-cyclical factors in Hong Kong's earnings structure is high. The sustainability of the bull market relies on the confirmation of fundamental repairs.

GF SEC released a research report stating that, in the short-term market, the trading logic will gradually shift from thematic excitement to the realization of substantial fundamentals, and volatility in the technology growth sector with large previous gains may intensify. The Hong Kong stock profit structure has a high proportion of pro-cyclical (real estate chain), and the sustainability of the bull market relies on the confirmation of fundamental improvement. The main points of GF SEC are as follows: Southbound funds set a new high for single-week net buying: In the past week (2.24-2.28), the daily average trading volume of Southbound funds reached 173.44 billion Hong Kong dollars, setting a new historical high (last week was the second highest in history), maintaining above 130 billion Hong Kong dollars for three consecutive weeks. The net buying amount of Southbound funds was 74.967 billion Hong Kong dollars, the third highest in history (the first two appeared during the bubble stage of core assets at the beginning of 2021). Portfolio structure of Southbound holdings: Which sectors are relatively crowded? 1. First-level industry holdings and over-allocations: Compared to all Hong Kong stocks, as of the end of February, information technology is over-allocated by 10.1%, and communication services by 3.4%. Pro-cyclical sectors are generally under-allocated, but high-dividend targets in the financial industry are actually the main direction where Southbound funds have flowed over the past year. Information technology is at high levels in terms of both absolute shareholding ratios and over-allocated ratios over the past 5 years; communication services are at over-allocated levels, but not too high in terms of percentile; stable sectors have been under-allocated in the past year, but still at a relatively high position in the long series. 2. Second-level industry holdings and over-allocations: Holdings of hardware equipment, semiconductors, and optional consumer retail in the technology growth sector are at near 3-year highs; after a slight increase in the fourth quarter of last year, some over-allocated percentages in certain segments of pro-cyclical industries have rebounded from lows to high positions over the past 3 years; the software services and telecom services, which were the main drivers of this round of gains, do not seem crowded from the perspective of over-allocation percentages; dividend sectors such as banks, oil and petrochemicals, coal, etc., have returned to mid to low levels in the past 3 years. 3. Style Switching: Technology growth VS high-dividend sectors. There has been a significant seesaw effect in the past period. During the Trump trade+ domestic policy expectation realization stage at the end of last year and the beginning of this year, a market adjustment occurred, and Southbound funds maintained a higher proportion of allocation to high-dividend sectors; in the latter half of January when the market stabilized, Southbound funds clearly switched from high-dividend to growth. 4. Key stocks: Which securities saw the largest increase in holdings over the past week? The securities with the largest increase in holdings over the past week were Alibaba (09988), Nio (02015), Xpeng (09868), HKEX, Lenovo Group, Innovent Bio, and Gu Sheng Tang. The securities with the largest decrease in holdings over the past week were Giant Biogene and China Resources Beer, among others. Risk warnings: Technological progress at the industry level falls short of expectations; deterioration in the overseas economic situation and negative impact from adjustments in US stocks; changes in the international political environment (US-China friction, geopolitical factors, etc.) bring additional challenges; domestic economic growth and policies to stabilize growth fall short of expectations (exports dragged down by overseas demand exceeding expectations, difficulties in restoring consumer confidence in real estate, etc.).